U.S. Companies Plan Pay Increases for Most Jobs, Pay Cuts for Some

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Over the past year, many U.S. employers have trimmed workforces and decreased work hours, with corresponding reductions in pay, as they struggled with cost-containment challenges. But salaries can only stay frozen for so long, and for those employees (67 percent) expected to receive a base pay increase before the end of 2009, salary budgets are projected to be 3.2 percent higher on average for employees overall, early findings from Mercer’s
2009/2010 U.S. Compensation Planning Survey reveal, based on responses from approximately 850 organizations across the United States as of April 2009.

While fewer executives (56 percent) are expected to receive base pay increases—compared to more than 70 percent of office/clerical/technician and trades/production/service employees—these increases will be slightly higher. For those executives who receive increases in 2009, their base pay is expected to be adjusted up 3.5 percent compared to increases of 3.1 percent for the employee categories of office/clerical/technician and trades/production/service.

Table 1.

2009/2010 budgeted base pay increases by employee group

2009 Actual

Employee

group

Employees receiving increases

(Excluding 0% increases*)

(Including 0%) increases)

All employees

67%

3.2%

2.1%

Executives

56%

3.5%

1.9%

Management

65%

3.2%

2.1%

Professional (salesand non-sales)

69%

3.2%

2.2%

Office/clerical/technician

72%

3.1%

2.2%

Trades/production/service

73%

3.0%

2.2%

2010 Projected

Employee

group

Employees receiving increases

(Excluding 0% increases*)

(Including 0%) increases)

All employees

88%

2.9%

2.6%

Executives

85%

3.1%

2.6%

Management

88%

3.0%

2.6%

Professional (salesand non-sales)

89%

2.9%

2.6%

Office/clerical/technician

89%

2.9%

2.6%

Trades/production/service

90%

2.9%

2.6%

Source: Mercer 2009/2010 U.S. Compensation Planning Survey

*These figures do not include the 0% salary increases planned by some employers.

“In response to the recession, employers have reduced staff for certain positions and placed higher value — and greater expectations — on other roles critical to the business,” says Steve Gross, global leader of Mercer’s broad-based performance and rewards consulting business. “This shift has led to greater variability in pay levels among job types, lines of business or geographies as companies allocate limited compensation budgets appropriately.”

Salary Freezes

According to Mercer’s survey, slightly more than two-thirds (67 percent) of surveyed organizations are planning to grant pay increases to all employees in 2009, and 88 percent are projecting to do so in 2010 — albeit with a good deal of variation by industry. And within organizations granting raises, the amount of salary increase "won't necessarily be spread evenly like peanut butter," says Gross, but may vary considerably among employees and employee groups.

Overall, executives will fare the worst in terms of salary freezes. Survey findings show 44 percent of organizations are planning to freeze salaries for executives in 2009 and 15 percent the following year, compared to 28 percent and 11 percent, respectively, for office/production/service staff.

“Companies realize that they need to be poised for a turnaround and continuing cost-cutting measures like layoffs and salary freezes may put them at a disadvantage once the economy recovers,” comments Gross. But he provides a caveat: Given so much uncertainty about the economy going forward, more companies are taking a "just-in-time" approach when it comes to executing salary increases. "Putting the salary increase numbers into their budgets now, as a 'placeholder,' does not necessarily mean they're going to spend it," Gross says.

Wider Variation in Total Cash Compensation

Among U.S. employers, pay across jobs is becoming less consistent. Median total cash compensation (base salary and annual incentive) has increased year-over-year among some jobs and decreased for others, according to Mercer’s
Market Pulse Report, which found:

• Positions in manufacturing, information technology and engineering show increases up to 2 percent compared to positions in marketing, finance and sales showing declines in pay.

• A similar variation in pay occurs among employee groups. For example, median total cash compensation for professionals has increased by almost 2 percent while it has decreased by nearly 5 percent for executives.

The report, which provides early indicators of market movement within the 2009 U.S. Mercer Benchmark Database, is based on data from more that 640 organizations from a wide range of industries, as of May 2009.

“While salary increases overall are relatively low, certain jobs are bucking the trend with increases nearly twice the rate of the overall market,” says Susan Haberman, Mercer’s U.S. regional leader for information product solutions. “Organizations are paying more for these positions since they support company-specific needs.”

On the whole, median total cash compensation increases year-over-year are just about half that of base salary increases (1.2 percent vs. 2.2 percent, respectively) across all jobs, industries and geographies. Executive and management positions are seeing the smallest increases in pay, according to Haberman.

Table 2.Year-over-year changes in total cash compensation by job function

Function

Median Total Cash Compensation Percent Change

Manufacturing

2.0%

Information Technology

1.7%

Engineering

1.2%

Human Resources

1.0%

Logistics & Supply Chain

1.0%

Legal

0.1%

Finance

-0.2%

Sales

-0.6%

Marketing

-1.3%

Source: Market Pulse Report, May 2009

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Table 3.Year-over-year changes in total cash compensation by employee group

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.